US Stocks Rise On China Keeping Rates Steady, Tax Deal

StevenRussolillo

NEW YORK (MarketWatch) -- U.S. stocks rose Monday after China, a motor of the global economy, decided against raising interest rates and as Democrats predicted the highly debated tax agreement would comfortably pass in the Senate.

The Dow Jones Industrial Average was recently up 43 points, or 0.4%, to 11453. Caterpillar, a bellwether for the global economy, was the blue-chip index's best performer as it rose 1.9%, while Walt Disney gained 1.9% and Chevron tacked on 1.7%.

General Electric shares slipped 0.1% after the conglomerate announced it will offer $1.3 billion for Wellstream Holdings, a maker of flexible pipeline products for the oil and gas industry. The move fits with GE's strategy to expand its industrial businesses with acquisitions. Wellstream's board said it will recommend shareholders accept the deal.

Monday's gains came after the People's Bank of China elected not to raise interest rates following strong inflation data released over the weekend, a move that could have cooled its economy. China on Friday instead raised banks' reserve-requirement ratio for the third time in a month.

"China's rates issue is fairly big just from the standpoint that if its economy doesn't slow dramatically, it's certainly good for the export picture for the U.S.," said Bruce McCain, chief investment strategist at Cleveland's Key Private Bank, an arm of KeyCorp. "Anything that puts them on hold or slows their efforts to dampen inflation is good for the U.S."

There are no economic data of note or earnings for investors to sink their teeth into Monday. A much-debated tax agreement is expected to comfortably clear a crucial hurdle in the Senate on Monday, but Democrats in the House of Representatives remained eager to test whether they could push Republicans to raise the proposed tax rate on estates.

The technology-oriented Nasdaq Composite added 0.01% to 2638 after closing Friday at its highest level since December 2007. The Standard & Poor's 500 index gained 0.4% to 1245, led by energy and materials stocks. All 10 of the S&P 500's sectors traded in positive territory.

"The momentum continues and we're seeing confidence build," said Michael Church, president at Addison Capital. The S&P 500 has risen in 12 of the last 15 weeks and traded at its highest level since September 2008.

"Bullish sentiment is increasing, but for now it's not at extreme levels," Church added, which bodes well for future gains. "It's not like everyone is wildly bullish. It's not pervasive across the board."

Investors are also gearing up for the outcome of the Federal Reserve's next policy meeting Tuesday afternoon. But market participants expect little change from the central bank with respect to its near-term outlook for monetary policy or its second round of quantitative easing, dubbed QE2.

"You have to believe they'll be a little more upbeat," said Bill Stone, chief investment strategist at PNC Wealth Management. At the same time, "the Fed will walk the line because we don't expect them to stop QE2 anytime soon, so they won't say anything too positive."

Demand for U.S. Treasurys rose, as the yield on the 10-year note fell to 3.26%. The euro firmed to $1.3385, compared with $1.3228 late Friday in New York.

The dollar fell, with the U.S. Dollar Index, tracking the U.S. currency against a basket of six others, off 0.9%. Crude-oil futures edged up toward $89 a barrel. Gold prices also rose.

Among stocks in focus, Dell agreed to buy Compellent Technologies for $27.75 a share, slightly more than it had originally indicated. Dell said last week it was in exclusive talks to buy the data-storage provider. Dell shares shed 3.5%, while Compellent dropped 2.9% to $27.87.

Huntington Bancshares said it plans to offer $920 million in common stock and offer $300 million in debt to help repay the $1.4 billion it received under the Treasury's Troubled Asset Relief Program. Shares dropped 4.7%.

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